French Tax Investigators Swoop on Google's Paris Offices

(Bloomberg) French police and prosecutors swooped on Google’s Paris offices on Tuesday, intensifying a tax-fraud probe amid accusations across Europe that the Internet giant fails to pay its fair share.

The raids are part of a preliminary criminal investigation opened in June 2015 after French tax authorities lodged a complaint, according to a statement from the nation’s financial prosecutor. The probe is seeking to verify whether Google’s Irish unit has permanent establishment in France and whether the firm failed to declare part of its revenues in France.

Prosecutors will probably go after Google’s management in Ireland, according to Alain Frenkel, a tax lawyer in Paris. “That doesn’t mean Google won’t also face a recovery order from France’s tax authorities,” he said in a phone interview.

The raids come as Google, which is part of parent company Alphabet Inc., faces outrage in Europe over the small amount of tax it pays in the region. France has called on the company to pay back taxes of about 1.6 billion euros ($1.8 billion).

While no one has been charged of any wrongdoing, French penalties for aggravated tax fraud have recently been ramped up. Convicted managers can potentially face as long as 7 years in jail and a 2 million-euro fine.

Google said in a statement that it complies with French law and is “cooperating fully with the authorities to answer their questions.” While French investigators delved into Google’s tax affairs, Alphabet Chairman Eric Schmidt was speaking a just a few hundred miles up the road at a conference in Amsterdam.

Unmarked CarsTwo unmarked cars with police signs on the windshield were still parked outside Google’s Paris office at 8 rue de Londres on Tuesday afternoon. The raids started at about 5 a.m. local time, Le Parisien newspaper reported earlier, citing an unidentified source.

French tax officials first raided Google’s Paris offices in 2011. The country’s government has criticized Google for booking most of its sales to French customers through its Irish subsidiary. Irish corporation tax is just 12.5 percent compared to France’s 33.3 percent rate. Last year, Google’s French subsidiary reportedly paid just 5 million euros in French tax, despite sales to French customers that analysts have estimated were greater than 1 billion euros.

Google’s European subsidiaries also pay hefty royalty payments to another Irish subsidiary that is physically located in Bermuda and which holds Google’s international intellectual property licensing rights. This reduces the profitability of Google’s European subsidiaries, which means they pay less tax.

U.K. DealEarlier this year Google reached a controversial 130 million pound ($190 million) settlement with the U.K. government over an audit covering 10 years of accounts. Critics called the amount "derisory" and urged the European Union to examine the agreement.

The scrutiny of Google’s tax affairs coincides with a separate EU clampdown into how some nations may be offering special deals to lure big companies.

EU regulators showed their resolve last year, ordering Belgium in January to recover about 700 million euros in illegal tax breaks to companies, including Anheuser-Busch InBev NV and BP Plc. Tech giants Apple Inc. and Amazon.com Inc. are still under investigation after the EU criticized their tax arrangements in Ireland and Luxembourg.

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